Chapter 4 VAT treatment of composite supplies

In this Chapter, I will describe the VAT treatment of composite supplies. Composite supplies are single supplies that consist of multiple elements, which can be either goods, services or both.

I will explain how these multiple element supplies can be categorized from a VAT perspective, and what this means for the VAT treatment of such supplies and their individual elements. Understanding the different types of composite supplies from a VAT perspective is a first step in determining whether a consideration paid for a composite supply is actually paid for all elements of that composite supply.

As with the Chapter on transactions that are subject to VAT (Chapter 3), this Chapter is part of the steps that need to be taken in order to determine whether a supply, or an element of a composite supply, is made ‘free of charge’. The aim of these steps is to establish what the VAT treatment is of supplies that are made free of charge, since free supplies are a species of promotional activities that can be performed through the use of vouchers.

Some vouchers are ‘given away for free’ together with a supply of goods or services that is made for consideration. It can be argued that the EU VAT rules regarding composite supplies should also apply to transactions involving vouchers. If a free SPV1 is provided together with a good, it could be argued that the SPV, embodying the supply of the goods or services to which that SPV relates and which are deemed to be supplied at the time of transferring the SPV, is not an aim in itself for the customer, but a means of better enjoying the main supply. If that is the case, the SPV is ‘absorbed’ by that main supply and, as a general rule, (part of) the consideration for that main supply should also be allocated to the supply of the SPV.2 The VAT treatment of free vouchers is different from vouchers that were issued or transferred for consideration. In this Section, all these issues are discussed.